Dynamic Price Competition

46 Pages Posted: 15 Apr 2003

See all articles by Dirk Bergemann

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Juuso Valimaki

Helsinki School of Economics; University of Southampton - Division of Economics

Date Written: April 2003

Abstract

We consider the model of price competition for a single buyer among many sellers in a dynamic environment. The surplus from each trade is allowed to depend on the path of previous purchases, and as a result, the model captures phenomena such as learning by doing and habit formation in consumption characterize Markovian equilibria for finite and infinite horizon versions of the model and show that the stationary infinite horizon version of the model possesses an equilibrium where all the sellers receive an equilibrium payoff equal to their marginal contribution to the social welfare.

Keywords: Dynamic Competition, Marginal Contribution, Markov Perfect Equilibrium, Common Agency

JEL Classification: D81, D83

Suggested Citation

Bergemann, Dirk and Valimaki, Juuso, Dynamic Price Competition (April 2003). Cowles Foundation Discussion Paper No. 1412. Available at SSRN: https://ssrn.com/abstract=395448

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Juuso Valimaki

Helsinki School of Economics ( email )

P.O. Box 21210
Helsinki 00100, 00101
Finland

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 23 8059 3263 (Phone)

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